Correlation Between Chembond Chemicals and Oriental Hotels

Can any of the company-specific risk be diversified away by investing in both Chembond Chemicals and Oriental Hotels at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Chembond Chemicals and Oriental Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chembond Chemicals and Oriental Hotels Limited, you can compare the effects of market volatilities on Chembond Chemicals and Oriental Hotels and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Chembond Chemicals with a short position of Oriental Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chembond Chemicals and Oriental Hotels.

Diversification Opportunities for Chembond Chemicals and Oriental Hotels

-0.16

Correlation Coefficient

Chembond Chemicals  Oriental Hotels

Good diversification

The 3 months correlation between Chembond and Oriental is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Chembond Chemicals and Oriental Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Hotels and Chembond Chemicals is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Chembond Chemicals are associated (or correlated) with Oriental Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Hotels has no effect on the direction of Chembond Chemicals i.e., Chembond Chemicals and Oriental Hotels go up and down completely randomly.

Pair Corralation between Chembond Chemicals and Oriental Hotels

Assuming the 90 days trading horizon Chembond Chemicals is expected to generate 1.13 times more return on investment than Oriental Hotels. However, Chembond Chemicals is 1.13 times more volatile than Oriental Hotels Limited. It trades about 0.08 of its potential returns per unit of risk. Oriental Hotels Limited is currently generating about 0.08 per unit of risk. If you would invest  24,622  in Chembond Chemicals on September 23, 2024 and sell it today you would earn a total of  36,088  from holding Chembond Chemicals or generate 146.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Chembond Chemicals  vs.  Oriental Hotels Limited

Chembond Chemicals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chembond Chemicals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Chembond Chemicals is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Oriental Hotels

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Oriental Hotels Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Oriental Hotels is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Chembond Chemicals and Oriental Hotels

The main advantage of trading using opposite Chembond Chemicals and Oriental Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chembond Chemicals position performs unexpectedly, Oriental Hotels can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Oriental Hotels will offset losses from the drop in Oriental Hotels' long position.

The idea behind Chembond Chemicals and Oriental Hotels Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.